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June 23, 2022updated 24 Jun 2022 10:09am

EU probe could delay $61bn VMware-Broadcom deal

The proposed $61bn deal is set to be delayed as regulators in Europe take a look at competition concerns.

By Matthew Gooding

The European Union is set to launch an in-depth antitrust investigation into VMware’s takeover by Broadcom. Reports suggest the detailed probe could delay the $61bn deal by a year or more.

VMware broadcom
EU regulators are set to investigate VMware’s proposed takeover by Broadcom. (Photo by Gabby Jones/Bloomberg via Getty Images)

Chipmaker Broadcom has already opened discussions with the EU about the investigation according to three people familiar with the deal who spoke to the Financial Times. The EU will investigate whether the takeover of the virtualisation specialist, announced last month, may lead to “abusive behaviour”.

Broadcom could face a phase 2 antitrust probe from the EU, the report says, similar to the one launched after Nvidia tried to buy British chip designer Arm in 2020. These investigations can take more than a year to complete. For Arm, this delay contributed to the cancellation of the deal in January.

The FT reports that opponents of the deal, including some VMware clients, have already contacted the EU to argue that if the takeover goes through they may be forced to buy services from Broadcom. They cite two other acquisitions, of CA Technologies in 2018 and Symantec’s enterprise security business a year later, as deals which harmed competition and resulted in Broadcom raising prices.

As yet no regulatory action has been announced in any other parts of the world, though the VMware-Broadcom deal is likely to face regulatory investigation in the US, where both companies are based. The UK and China could also open probes.

VMware-Broadcom merger: the story so far

The potential acquisition of VMware was announced by Broadcom last month, and forms part of a plan to widen the company’s portfolio.

“Building upon our proven track record of successful M&A, this transaction combines our leading semiconductor and infrastructure software businesses with an iconic pioneer and innovator in enterprise software as we reimagine what we can deliver to customers as a leading infrastructure technology company,” Hock Tan, president and CEO of Broadcom, said at the time.

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While the EU investigation will look at the anti-competitive elements of the deal, analysts who spoke to Tech Monitor said there are no obvious synergies between the companies.

“Broadcom’s acquisition strategy seems to be around just trying to buy relevance in the enterprise IT market beyond its base chips business,” said Steven Schuchart, principal analyst at GlobalData. “The only reason I can think Broadcom would want VMware is to diversify its product portfolio into software, which generally has a much less lumpy and more predictable income flow due to software subscriptions.”

Broadcom’s plans for VMware

Indeed, after the deal was mooted, Broadcom said it plans to transition VMware away from perpetual licenses to a full software-as-a-service subscription model. By doing this, Broadcom hopes VMware will add $8.5bn to its bottom line.

In a blog post published yesterday, Broadcom’s software president Tom Krause outlined some of his company’s plans for VMware.

Krause said that CA Technologies and Symantec products will operate under the VMware banner once the deal is completed, but said customers will be “free” to choose whether to use them or not. He said the combined companies would “help enterprises build, manage and secure a wide variety of applications – from mainframe to client server to cloud-native via Kubernetes – and more securely deliver amazing end-user experiences to any device anywhere.”

He added that keeping existing VMware customers happy would be a priority, something which the impending EU investigation suggests may be easier said than done. “We recognise the central role that VMware’s deep customer relationships play in its success,” Krause said. “Broadcom wants to preserve and grow these relationships and we’ll be investing in both the direct sales force across all key verticals as well as the partners that support the broader customer base.”

Read more: VMware switches focus to SaaS and multi-cloud

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